Commissioner of Income Tax vs Lotus Roofings P. Ltd.

Prabha Sridevan, J.—In the present tax case (appeal), two questions of law were framed for consideration. At the time of argument, Mrs. Pushya Sitaraman, learned Counsel for the appellant prayed that instead the following substantial question of law may be framed for consideration.

C. The Appellate Tribunal failed to see that the third proviso to Section 32(1) read as follows:

Provided also that, in respect of the previous year relevant to the assessment year commencing on the 1st day of April, 1991, the deduction in relation to any block of assets under this clause shall, in the case of a company, be restricted to seventy five per cent. of the amount calculated at the percentage, on the written down value of such assets, prescribed under this Act immediately before the commencement of the Taxation Laws (Amendment) Act, 1991.

It is clear that there is no condition that the assets should have been found to have been put to non-business use.

The assessee is a limited company. For the assessment year 1991-92, it claimed depreciation and the depreciation was restricted to the extent of seventy five per cent. Aggrieved by this, the assessee went before the Income Tax Appellate Tribunal which held as follows:

...2. For the assessment year 1991-92, the grievance of the assessee is with regarding to making proper adjustment in regard to depreciation to the extent of restricting the deduction to 75 per cent. This is a case of a limited company, which is an artificial juridical person. Unless and until it could be shown that the assets are used for non-business purposes the restriction of depreciation for business use is not permissible. We, therefore, uphold the claim of the assessee and accordingly the orders of the authorities on this point is set aside. Consequently, the additional tax levied is also cancelled...

Though in the said order, two assessment orders were grouped together, the present appeal is only with regard to the assessment year 1991-92.

Mrs. Pushya Sitaraman, learned Counsel for the appellant, submitted that the third proviso to Clause (ii) of Section 32(1) does not lay down any condition that this restrictive clause with regard to claim on depreciation would apply only if the assets had been put to non-business use. We find that the reduction in rates of depreciation for the assessment year 1991-92 was brought about by the Taxation Laws (Amendment) Act, 1991, for the following reason:

Faced with the stringent financial situation arising out of the Gulf crisis, to mobilise additional resources to meet the same, the Government decided to restrict the depreciation allowable on the written down value of block of assets to 75 per cent. of the amount calculated at the percentage prescribed under the Act. The third proviso (which will become the fourth proviso with effect from April 1, 1992) to Clause (ii) of Section 32(1) printed above in italics has, therefore, been inserted by the Taxation Laws (Amendment) Act, 1991, which received the assent of the President on January 15, 1991. It is, however, applicable only to companies and applicable only for the assessment year 1991-92, The Act has also amended Section 234C of the Act to provide that the extra advance tax arising on account of this provision should be paid as part of the instalment of advance tax payable on or before March 15, 1991.

Learned Counsel for the respondent submitted that the assessee themselves filed a revised return restricting the depreciation to 75 per cent. and that this point was specifically argued before the Commissioner of Income Tax (Appeals), where the assessee contended that when the assessee himself has filed a revised return, the levy of additional tax was unwarranted. The learned Counsel for the assessee submitted that, therefore, when the revised return had been filed and the claim for depreciation has been restricted to 75 per cent. as it should, there should not be claim for any additional tax if the question raised by the Revenue is in favour of the Revenue. Learned Counsel for the appellant submits that the appeal is restricted to the quantum of depreciation and not with regard to additional tax especially if a revised return has been filed.

It is clear that this is a special amendment brought about to meet a particular critical situation and was applied for only one year so that additional resources could be mobilised and, therefore, the approach that has been adopted by the Tribunal with regard to depreciation claimed, otherwise, cannot apply. The Tribunal had totally misunderstood this third proviso to Clause (ii) of Section 32(1) for the year 1991-92. Depreciation is restricted to 75 per cent. and this restriction is applicable only to companies and also only for the assessment year 1991-92. The appellant being a company and the assessment year in question being 1991-92, the question raised by the Revenue must be answered in favour of the Revenue. Accordingly, the tax case (appeal) is allowed. No costs.